Rio shares jump 7.5pc on news of CIC offer
Daniel Ren in Shanghai
Shares of Rio Tinto jumped 7.48 per cent yesterday on speculation that the mainland's sovereign wealth fund is planning a bid for the world's third-largest mining company.
China Investment Corp (CIC) denied the reports, but analysts said Beijing had reasons to scramble for global mining assets to help engineer a long-term healthy economic growth.
Rio Tinto closed at A$138 (HK$951.65) on the Australian Stock Exchange, up A$9.60.
'The significance would be far-reaching if China were to succeed,' said Liu Baoyao, GF Securities' steel analyst.
'As the world's largest importer of iron ore, China will have to change the current status quo because the country has no say in pricing of the raw materials.'
China Business said over the weekend that CIC was looking to rival BHP Billiton's bid for Rio Tinto, joining hands with several major steelmakers including Baosteel Group, Shougang Corp and Anshan Iron & Steel Group.
Steel mills are facing a 50 per cent iron ore price rise next year, according to Macquarie Group, forcing mainland companies to pay more than US$15 billion extra for the mineral, which is priced at more than US$72 a tonne.
The mainland's steel output is expected to hit 500 million tonnes this year, according to Morgan Stanley. To make a tonne of steel, 1.6 tonnes of iron ore is needed, and half of the nation's ore consumption is imported.
To cope with rising raw material costs, mainland steelmakers would raise prices in the first quarter, Luo Bingsheng, vice-chairman of the China Iron and Steel Association said yesterday.
CIC issued a statement yesterday dismissing reports that it was involved in a counter-bid for London-based Rio Tinto.
'Price and regulations are the sticking points for such a deal,' said Xu Zhongbo, president of steel consultancy Beijing Meitake. 'China won't be able to fulfil the buyout unless the central government is determined to do so.'
Analysts and industry officials say it is reasonable for Beijing to join in the takeover bid for Rinto, the world's third-largest mining firm, given that the country is awash with foreign exchange reserves and is in a rush to churn out steel to support its fast-expanding economy.